Business-oriented services sectors: Business-oriented sectors in the Australian PSI® were mostly stable across February. Finance & insurance reported the same results as January, transport and storage improved slightly, property & business services deteriorated slightly. None of the business-oriented sectors experienced expansion in February. The wholesale trade sector reported firmly negative conditions, with particularly weak sales and new orders in February. No results were available this month for the communications sector.
Consumer-oriented services sectors: Three of the consumer-oriented sectors contracted and one expanded in February 2019. Hospitality contracted sharply with negative (and deteriorating) results for sales, new orders, employment and deliveries. Retail and health & community services also contracted. The ‘personal, recreational & other services’ sector expanded in February.
Services wages and prices: The input price index rose in February (60.2 points) but at a slower rate than the previous two months and below the long-term average for this index (64.0 points). Average wage growth eased (53.0 points) the second month of moderation and the slowest pace of growth since May 2017. The average wage index continues to trend down from the recent peak in May 2018. The selling prices index continued to contract in February, the eighth month of flat or falling selling prices and the lowest result since August 2016.
Services activity: Two of five of the activity indexes in the Australian PSI® were negative and indicated contraction in February two were stable and one expanded. Sales and new orders both shrank for a second month, in line with this, inventories increased steadily across the month. Employment improved slightly to be stable, while deliveries bounced back from a single month of contraction in January to also be stable in February.
Services highlights: The Australian PSI® contracted for a second month in February following 22 months of positive conditions. It had been trending down since its recent peak in the middle of 2018. Consumer-oriented businesses are now facing the tighter conditions that business-oriented sectors saw through the end of 2018. Capacity utilisation in the Australian PSI® improved by 1.6 points to 78.4% of available capacity in February. This is above the long-run average of 76.0% but down from the average across 2018 (79.7%).
Services concerns: Retail trade and hospitality were the weakest services sectors in early 2019 as consumer-focused business face increasingly tighter conditions. Services businesses reported weak customer demand in February due to extreme heat and drought conditions in some areas of Australia, flooding in others and a deterioration in consumer spending. The lower Australian dollar increased competition for local businesses and increased costs for those using imported inputs, however some businesses benefitted from an uptick in export orders.
Weakness clearly led by consumer. Check out crashing new orders suggesting worse ahead. Full report.
February showed a deterioration in Australian service sector activity for the first time since the survey began nearly three years ago. A decline in new work, linked to droughts and bank regulatory changes, weighed on business activity. Growth in export orders and backlogs also eased. However, business confidence was sustained and job creation picked up. Inflationary pressures meanwhile intensified, with input costs rising markedly.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
